Maryland, like U.S., to come back strong in '94, panel of economic experts says MARYLAND'S ECONOMY: LOOKING UP

January 02, 1994

For a view of the 1994 outlook in the nation and in Maryland, The Sun conducted a round-table discussion with three prominent experts on the state's economy.

The participants are Mahlon Straszheim, chairman of the University of Maryland economics department and Gov. William Donald Schaefer's chief economic adviser; Mary J. Miller, a managing director of T. Rowe Price Associates and manager of $900 million invested in Maryland bonds; and Charles W. McMillion, founder and president of MBG Information Associates Washington. They were interviewed by staff writer John E. Woodruff.

Q: Will 1994 see a continuation of the national economic recovery?

Mahlon Straszheim: I think the national recovery will be very strong in '94 and '95 and conceivably beyond. I think the national economy is very strong in the cyclical areas now, but it is being retarded by slow growth in net exports, and as the world economies turn in later '94 and in '95 the net export sector will contribute to our growth in '95 and beyond.

Mary Miller: We think the last three quarters have put us on a pretty good track for a recovery continuing into 1994, and we are beginning to see that at the state level, too, and we're forecasting something on the order of 3 percent [gross domestic product] growth for 1994.

Charles McMillion: Technically, the national economy is entering its fourth year of recovery. We think that [this] year will be slightly better than 1993, something in the range of 3 percent nationally.

We expect that the value of the dollar against European currencies and Japan will strengthen over the coming years, and therefore we don't expect to see an improvement in U.S. net exports, which is now taking more than a full percent away from economic growth.

Q: How vigorous will Maryland's recovery be?

Mr. Straszheim: Maryland's economy will do well. I think the recession is over in the state, and we can look forward to two or three years of reasonably healthy employment growth, probably about 1 1/2 percent a year.

Employment growth will continue to be moderate, but because of high productivity we'll have high output per worker, and so real income will grow pretty rapidly in the next two or three years, and personal income will grow about 6 percent even though employment will be growing only moderately by historical standards, (such as) in the 1980s.

Ms. Miller: We don't have a specific forecast for the state's growth, but we are looking at Maryland tax collections, revenue collections, seeing them pick up, and we think the state will do well in 1994.

I think we've seen a slowdown in personal income growth over the last three years, and we don't think that it will continue at the same levels of the 1980s. . . . Those levels reached something on the order of 8 percent during certain years in the 1980s. So we might see a less vigorous rebound in personal income, and it probably has something to do with the mix of jobs that are being created.

Mr. McMillion: Maryland will have its best year since 1989. We think that Maryland will see job growth of about 1 percent and real economic growth of about 2 1/2 percent with low inflation.

We do think that there will be very strong productivity growth. We have not seen strong productivity growth so far in this recovery. . . . But productivity will not drive wage increases. As you look across the industrial landscape now, those industries that have had sharp productivity growth -- machine tools [and] manufacturing in general -- have seen their wages decline, and that's likely to continue because our foreign competition is also growing their productivity. So we think that incomes and profits will continue to be severely restrained over the next several years.

Q: This recession has been Maryland's worst, at least since World War II. Now that it's ending, has it left any long-term damage or brought any long-term benefits?

Ms. Miller: One of the things that has happened is we've become a higher-tax state with the recession. The state raised its income taxes in 1992 and gave local governments the ability to raise what we call the piggyback tax, or the local tax that fits on top of the state income tax. One of my concerns would be whether we haven't raised the tax burden in the state and what that means for the competitiveness of Maryland. I think the recession has also shifted some costs to local governments from the state level.

Mr. McMillion: I think that this severe recession has done a lot of damage to the state. . . . On the positive side, however, this recession has sent shock waves through the business and political community, and although it has caused them to raise taxes and to increase regulations and make doing business a little more onerous in some ways, there is the beginning of a change in the culture in this state toward being more commercially oriented and entrepreneurial.

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